Oil majors fear Saudis may be cutting output

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Oil majors fear Saudis may be cutting output Source: The Scotsman Publication date: 2000-08-02

LOWER oil prices have raised suspicions among traders that the OPEC powerhouse Saudi Arabia now sees less incentive in hiking its own production to cool the market. Many think the kingdom could be reluctant to pump every last barrel of a planned 500,000 barrels per day (bpd) output rise.

But the kingdom is keeping silent, stirring uncertainty over the strategy of the world's biggest oil exporter and leading supplier to the huge US energy market.

The ultimate fate of the plan will influence the direction of oil prices and could cause a stir inside the fractious OPEC cartel, where the issue of extra Saudi barrels is sensitive.

Industry sources said last month that Saudi Arabia was making good on a pledge to lift oil output by 500,000bpd and had already started turning up the taps by half that amount. The remaining 250,000 bpd was due to be pumped in August.

But some major lifters of Saudi crude believe that the kingdom is now curtailing output hike because prices are no longer at alarming levels.

"It all seemed to go cold at the beginning of last week. It was on hold," said a major lifter of Saudi oil. "There are two factors, one is the price drop and the other is there was some concern that the Saudis were acting on their own (without the rest of OPEC)."

At one point the kingdom's plans had appeared completely shelved after the OPEC President Ali Rodriguez announced on 18 July that there was no need for a cartel output rise because prices had fallen below a $28 threshold for additional supplies.

Traders then said Saudi Arabia let it quietly be known that it would go it alone with the output increase, aiming extra barrels at markets in the United States and Far East, breaking ranks with the rest of OPEC.

But now that the kingdom has secured prices in its comfort zone around $25 for OPEC's basket of crudes, it is unclear whether the country still needs to press ahead fully with its agenda. The basket stood at $25.17 on Monday.

The additional Saudi oil comes on top of a June OPEC decision to boost supplies from ten members by 708,000bpd to 25.4 million bpd. The 11th member, Iraq, bound by UN sanctions, takes no part in OPEC output curbs.

But Saudi Aramco has not been not specific about available extra volumes, giving rise to a grey area over exactly how many Saudi barrels were heading to market, the firms said.

Saudi Arabia, which helped mastermind successful OPEC deals in the last two years to rescue markets from a price collapse, does not want to be seen as acting outside of the cartel.

Not everyone agrees Saudi is curtailing the increase.

"The first 250,000 bpd was definitely done," said a big Saudi customer. "They have not indicated a change of plan."

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=12534207&ID=cnniw&scategory=Energy%3AOil

-- Martin Thompson (mthom1927@aol.com), August 03, 2000


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